Before they built their latest luxury projects, San Francisco-based development company Trumark Urban compiled market research on what it calls “warm shell” properties, meaning those that have electrical, mechanical, structural and plumbing systems in place, but are otherwise unfinished. Right away, a few things stood out.
First, they found that these units, which are also known as “vanilla shells,” “custom shells,” “white boxes” or “decorator-ready,” were most often purchased by buyers who had undertaken a gut renovation project before or built a home from scratch.
Many homeowners who buy in the $5 million to $20 million range have done this many times over, said Arden Hearing, Trumark Urban’s managing director.
“They prefer to set up a unit exactly as they see fit, from the layout to the finishes,” he said, and have the financial means and the team in place—including a contractor, architect, engineer and designer—to execute their vision.
Second, Trumark Urban found that selling unfinished units didn’t necessarily mean offering them at a lower price-per-square-foot rate than comparable finished units in similar locations. For instance, in Manhattan, where most of their market research was based, Mr. Hearing saw interesting examples where a finished, luxury penthouse—either new or resale—would sell for a similar amount to an unfinished shell penthouse.
“This would be surprising in the context of a normal condo,” he said, in which the finished product would likely be worth more. “But if someone isn’t putting any value on the finishes, because they plan on ripping them out to do their own thing,” this isn’t the case, he said.
Finally, Mr. Hearing said, they discovered that some people who were interested in these units didn’t want to undertake a massive renovation. In these cases, it was beneficial to offer an option in which they could come in and pick out the specific finishes—like you might if you purchased an Italian sports car—and return six months later to move in when the property was ready.
To address these findings, Trumark Urban included the option for a white glove buildout concierge program at its The Pacific development in San Francisco, which originally featured eight “warm shell” properties—three of which remain available, offered for $6.495 million, $9.95 million and $13.85 million.
The development company also recently offered two unfinished, now-sold penthouse units in its downtown Los Angeles Ten50 project. And the company isn’t the only one selling such units. “Warm shell” properties are common and have been around for decades in prime cities, such as New York and Miami, where high-net-worth individuals often buy, experts say.
“They’re popular because everyone has different tastes, and wants to express their individuality—especially at the high end of the market,” said Miami-based developer Gil Dezer of Dezer Development, who’s offered only designer-ready, unfinished units in his Porsche Design Tower and Residences by Armani/Casa projects in Sunny Isles Beach.
“We figure there’s no sense in installing an expensive cream marble that someone rips out because they want dark marble,” he said. “The market likes it this way.”
‘Warm shells’ are best for end-users—not investors
Because unfinished units require a significant amount of money and time to get right, experts say they’re most often purchased by end users as a primary or secondary residence.
“This tends to be a home that the buyer has a significant emotional investment in,” said Garrett Frakes, managing partner of Polaris Pacific, the San Francisco-based company that handles sales and marketing for The Pacific.
“Warm shells” are also most often delivered on penthouse floors, where units are 2,500 to 4,500 square feet or larger, Mr. Frakes said, noting that on lower floors and in smaller, less expensive units, people want something that is finished and move-in ready.
When it comes to the cost, Mr. Hearing said the remaining “warm shell” units in The Pacific are listed at $3,000 to $4,000 per square foot, which is, “record-breaking pricing for San Francisco.” On top of that, buyers can expect to spend an additional $650 per square foot, or up to more than $1,500 per square foot, at the highest end, to complete the unit.
In Miami, Mr. Dezer said he sees most people spend a bit less—$200 to $800 per square foot—to finish out their decorator-ready units. But that’s after he delivers them with the bathrooms and kitchen at least semi-finished, with floors and countertops in place, so that he can get the certificate of occupancy for the building. Compared to the $25 per square foot a developer would spend on finishes in a typical commoditized rental building, this is still a significant amount.
When it comes to how long it takes to finish a “warm shell,” that too depends on the buyer, and how well they know what they want.
If they have everything planned and ready to go when they close, Mr. Dezer said, it could take 90 days to get things right. But he’s seen it done in three weeks, and he’s also seen it take more than two years—especially when architectural designs and permits are required. “If someone knows they’re closing in six months, that’s the right time to start designing the unit,” he said.
The level of customization offered will vary by building
At The Pacific, Mr. Hearing said that Trumark Urban knew from the outset that they wanted to provide as much flexibility as possible to buyers, who can completely alter the unit’s layout, adding bedrooms or taking them away. They can even relocate the staircase or put in an elevator, as one buyer has already done.
“These homes will look dramatically different from any other home in the world, and certainly different from any other home in the building,” he said. “We offer buyers the chance to create something extremely bespoke and custom.”
On the other hand, Mr. Dezer said that his buyers don’t typically want to go that crazy, in part because these major changes can get expensive.
“Decorator-ready units give you a great floorplan, with the walls up and doors installed,” he said. “You just go and color it out—pick your wall colors, your floor colors and finishes, your furniture and what kind of shades you want.”
If you start moving things around “and further customizing the apartment,” he continued, “you’re getting into real money and real time.”
While the Trumark Urban team offered the white glove buildout concierge program, Mr. Dezer is offering a similar perk in the Residences by Armani/Casa project.
If they choose to take advantage of it, buyers of the $2-million-to-$9-million units are paired with an Armani designer who helps bring their vision to life. The $25,000 Armani/Casa gift card that comes with the purchase is meant to help them get there.
Help is available for buyers who can’t visualize the finished product
While a one-of-a-kind, customized home sounds great to most high-net-worth buyers, some have a hard time picturing what the space could look like when it’s finished, Mr. Frakes said.
If photo renderings and two-dimensional floor plans are not enough, Mr. Hearing said, the marketing team offers a virtual reality program that allows potential buyers to “walk through” what looks like a finished unit, with walls in place and a finished kitchen. Another option is to look at a temporary pop-up model unit.
While all this sounds like more work for the developer to deliver unfinished units, “physically and logistically, it’s simpler,” Mr. Hearing said. But it’s also more artful, he continued.
However, “if you offer customization for a property that isn’t worthy or special, it could really work against you,” he added, noting that penthouse units in The Pacific have great views of the city, the bay and the Golden Gate Bridge.
“The less commodity and the more high-end a unit is,” he said, “the more viable a shell product is.”
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